Prosperity Bancshares, Inc. — Third Quarter 2026 Earnings Summary

Financial Performance:

• Reported net income of $141.5 million ($1.18 diluted EPS) for the quarter ended September 30, 2026, compared to $137.6 million ($1.45 diluted EPS) in the same period in 2025.
• Excluding merger-related expenses, an out-of-state tax settlement, and a gain on Visa stock exchange, net income was $200.8 million ($1.67 diluted EPS).
• Net interest income increased 62.0% year-over-year to $443.0 million, driven by the mergers and asset repricing.
• Net interest margin increased 49 basis points year-over-year to 3.73% and 26 basis points sequentially to 3.73%.
• Noninterest income was $52.7 million, up 27.8% year-over-year, primarily due to the mergers.
• Noninterest expense was $308.6 million, up 122.6% year-over-year, primarily due to $69.7 million in merger-related expenses and increased salaries and benefits.
• Efficiency ratio was 62.05%; excluding merger-related expenses, the efficiency ratio was 48.03%.
• Total assets reached $54.1 billion, an increase of 41.1% year-over-year.
• Loans increased 45.5% year-over-year to $32.1 billion; deposits increased 48.4% year-over-year to $41.2 billion.
• Noninterest-bearing deposits were $13.8 billion, representing 33.6% of total deposits.
• Allowance for credit losses on loans was $592.0 million (1.85% of total loans); excluding Warehouse Purchase Program loans, the ratio was 1.91%.
• Nonperforming assets were $193.9 million, representing 0.41% of average interest-earning assets.
• Net charge-offs were $4.4 million for the quarter.
• Annualized return on average assets was 1.06%; excluding one-time items, it was 1.50%.

Guidance and Future Outlook:

• Management expressed confidence in future earnings growth potential as a larger bank.
• The company remains focused on completing the operational integration of Texas Partners Bank and Stellar Bank.
• Management highlighted the Texas and Oklahoma economies continuing to expand in late 2026 despite labor supply constraints, inflation, and energy price headwinds.
• Major construction projects in Texas, including data centers, chip factories, and projects by SpaceX and Tesla, were cited as positive market indicators.

Business Segments and Product Lines:

• Completed the merger of Stellar Bancorp, Inc. into Prosperity Bancshares on July 1, 2026.
• Completed the merger of Southwest Bancshares, Inc. into Prosperity Bancshares on February 1, 2026.
• Completed the merger of American Bank Holding Corporation into Prosperity Bancshares on January 1, 2026.
• Stellar Bank operations added 52 banking offices in Houston, Beaumont, East Texas, and Dallas.
• Texas Partners Bank operations added 11 banking offices in Central Texas (San Antonio, Austin, Hill Country).
• American Bank operations added 18 banking offices and two loan production offices in South and Central Texas.
• Total banking centers increased to 352 as of September 30, 2026.

Market and Competitive Landscape:

• The mergers significantly increased the company's scale, competitiveness, and efficiency, enabling technology investments difficult for smaller banks.
• The company operates across Texas and Oklahoma, serving a population of 31.7 million in Texas.
• The company benefits from Texas's business-friendly government and lack of state income tax.

Risks and Challenges:

• The effective tax rate was elevated at 24.4% due to a $5.0 million out-of-state tax settlement.
• Nonperforming assets increased to 0.41% of average interest-earning assets, impacted by assets acquired in the mergers.
• Net charge-offs for the nine months ended September 30, 2026, included a $37.7 million increase in commercial and industrial loans.
• Forward-looking statements note risks including integration of acquired businesses, credit quality deterioration, and economic fluctuations.

Management Commentary and Tone:

• David Zalman, Senior Chairman and CEO, stated the company is "extremely proud of this year's growth" and highlighted the magnitude of the mergers.
• Zalman noted that the company's greater scale strengthens competitiveness and improves efficiency.
• Management expressed excitement about the future as a larger bank and the potential for earnings growth.
• The tone was confident, citing strong fundamentals and resolve to continue building the bank.

Other Key Points:

• The Board approved a 6.67% dividend increase to $0.64 per share for the fourth quarter of 2026, marking the 23rd consecutive annual dividend increase with a compound annual growth rate of 10.4% since 2003.
• Repurchased 457,000 shares of common stock in the third quarter for $31.8 million and 1.5 million shares year-to-date for $102.6 million.
• The company recorded a gain of $927 thousand ($0.01 per share) from the exchange and conversion of Visa Inc. Class B-2 stock.
• Goodwill recognized from the Stellar Merger was $898.2 million; from the Southwest Merger, $141.5 million; and from the American Merger, $185.7 million.
• Core deposit intangibles recognized were $184.0 million (Stellar), $33.8 million (Southwest), and $31.1 million (American).
• The company operates 352 full-service banking locations across Texas and Oklahoma.